Axiom

Empiricom - KPMG launches unique insurance group solvency margin calculation software

KPMG, the professional services firm, has launched a unique software package which enables insurance companies to calculate their group solvency margin as required by the new Supplementary Supervision on Insurance Undertakings in a Group (IGD). The software, IGD Advisor, has been developed in conjunction with Empiricom Technologies Limited, the Expert Knowledge Management systems company.

Many insurance companies will face considerable challenges in implementing the requirements of the directive. If the group solvency calculation produces a deficit position, the insurance company will have to submit a statement to explain the reasons for the deficit and plans to take any remedial action. The FSA could potentially take action against insurance entities within the group to ensure that the group has adequate capital. This will put increased pressure on retained capital within insurance groups. While individual insurance entities may meet the solvency requirements under local regulations, there will be some cases where they may not do so on a group basis. This is especially pertinent for groups with double gearing, those that have financed large acquisitions resulting in high levels of goodwill and complex group structures.

Companies will find it difficult to meet the demanding timetable for submission of the calculation, getting to grips with the complexity of the calculations and reporting to the FSA. This is exacerbated by current uncertainty over how some of the rules should be interpreted and applied. A critical aspect to the process is obtaining appropriate information from other group companies on a timely basis and ensuring that the report can be generated by the FSA’s tight deadline.

The software can assist in all stages of calculation and capital planning. Its key features include:

·A structured approach to data entry and adjustments required

·An import export facility enabling data to be completed by different parts of the group and subsequently aggregated

·An integrated functionality which enables suitable reports to be generated automatically from the underlying data set

·Help to understand the group’s current solvency position through a graphical analysis of the overall surplus or deficit across the group

·Identification of the main causes of strain on the group solvency position

·The ability to evaluate and optimise the solvency requirements of any proposed corporate transactions or restructurings

·A visual indication of where deficits arise

Commenting on the launch, Hitesh Patel, partner in KPMG’s Financial Services regulatory division, said: "The new directive is likely to present several challenges to insurance companies, including dealing with any deficits, determining the levels at which calculations need to be made, restatement of overseas companies and valuing surplus assets. Our experience has shown that there are a number of complexities in the calculations which will need to be addressed by companies in a very short time-frame. Our software package, the only one of its kind, will enable companies to meet the challenges of the directive and report to the FSA without the need to create complex spreadsheets to obtain the relevant information. It allows regular monitoring of group capital requirements and can be used to perform scenario testing - we intend to work with Empiricom further to extend the range of functions it can perform."

Rick Turner, co-founder and CEO of Empiricom, said: "IGD Advisor clearly illustrates the business benefits that derive from being able to disseminate vital industry knowledge in such an effective and timely manner. In highly regulated markets it is crucial to deliver such rules and expert opinion in a way which provides consistency as well as accuracy. We believe there is still more that can be done to automate such processes, and we look forward to working with KPMG to develop even greater functionality into the software."

Those interested in finding out more about the software can contact Hitesh Patel at KPMG on 020 7311 5460 or can e mail igdadvisor@kpmg.co.uk

Notes to editors:

The IGD is effective for financial years beginning on or after 1 January 2001, with the first calculations required for 31 December 2001 year ends. It requires insurance companies to submit a parent-undertaking solvency margin calculation within 3 months 15 days or 4 months of their year end depending as to whether the submission is paper or electronically based. The FSA requires the report to be filed with the regulatory return, however, the information is not made available publicly.